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Mortgage Repayment Holidays

Most home loan lenders will give you a temporary repayment holiday if you're struggling to make repayments if you meet their criteria. Here's how it works.

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A mortgage repayment holiday is a temporary period of time where your lender pauses your monthly mortgage repayments. This can be very helpful for borrowers in temporary financial hardship.

Read on to find general information about different ways to put your mortgage repayments on hold and other options for borrowers facing financial hardship.

5 ways to pause or reduce your home loan repayments

There are several options available for pausing your home loan repayments. Some of these can be quite simple, while others may be a little more challenging.

  1. Temporary mortgage payment suspension through hardship variation. If you are unable to keep up with your regular repayments because of temporary financial stress you can apply to your lender for a hardship variation. If your lender agrees they will pause your repayments and add all interest charges on your home loan to the end of the loan term. This can extend your loan term and add thousands of dollars to your original loan amount, but could keep you from losing your home.
  2. Temporary mortgage payment reduction. If your income has been reduced temporarily, such as one spouse losing a job and leaving you with only one income, you may be able to apply for a temporary reduction in your mortgage payments. In this situation, your lender may ask you to provide an amount of money you think you can comfortably repay without putting you into financial hardship.
  3. Temporary mortgage payment suspension using your redraw facility. If you have been making extra payments off your mortgage balance, you may find that you have funds available. This is known as a redraw facility. Rather than withdraw these, you may be able to use them to substitute making repayments. Note that not all mortgages have a redraw facility.
  4. Switch payments to interest-only. If your mortgage has principal and interest repayments you might be able to temporarily switch to interest-only repayments. This will reduce your monthly repayments significantly in the short term because you only have to pay the interest charged on your loan. But over time this will cost you more because you will need to repay the whole mortgage eventually.
  5. Refinance your mortgage. How competitive is your interest rate? If you can switch to a lower rate your repayments will go down. While not a repayment holiday, refinancing to a lower home loan rate will make your life a little easier.

How long can my repayment holiday be?

stressed man due mortgage feesThe length of a repayment holiday is largely up to your lender. Most lenders will take into account your individual circumstances, and set up a repayment holiday that meets your needs.

Be aware, however, that while your repayments are reduced or paused, interest is still accruing on the principal of your home loan. This means you'll eventually need to either increase your repayments or the length of your loan term in order to make up the difference.

What to do if you missed a mortgage repayment

How much does a mortgage payment holiday really cost?

Stopping the payments on your home loan even for a short time can cost you a lot more than you might think.

Let's assume your mortgage balance is $300,000 with an interest rate of 6.2%. Your minimum monthly repayments are $1,838 per month, which you pay comfortably for the first 12 months. After this time, you've managed to get your home loan balance down to $296,451.40, but you find that you've lost your job and you need to take a three month mortgage holiday.

During your repayment holiday your lender adds the interest charges onto your loan balance. The interest that was added to your home loan balance during that first month will also have interest charged on it during the second month. Both of those amounts will have interest charged on them during the third month of your holiday.

  • Month 1: an additional $1,531.66 is added to your loan balance
  • Month 2: an additional $1,539.11 is added to your loan balance
  • Month 3: an additional $1,547.06 is added to your loan balance

By the end of your three month holiday you will owe an extra $4,617.83 on top of your previous loan balance of $296,451.40. That means you now owe $301,069.32.

And because your loan balance is now higher but your loan term remains the same (you have 29 years left) your repayments will increase from $1,838 to $1,865 per month. This is only $27 per month, so it doesn't sound like much, but if you add up those payments over the total course of the loan, you end up with a very different figure.

On the new payments, the total amount you'll pay back to the bank is $649,183.21. Yet, if you'd found a way to stick to your original payments without taking the payment holiday, you would only have paid $639,416.

That's almost a $10,000 difference over the total loan term.

Of course, if you face the prospect of losing your home during a period of temporary financial hardship, those costs might be worth it in the long run.

Hardship policies of the major banks

The big four banks have programs in place to help home loan customers facing financial hardship.

ANZ

ANZ allows customers to take a repayment holiday of up to three months. During the repayment holiday, interest will still accrue on the outstanding principal. Once the repayment holiday is over, you can either increase your repayments or extend your loan term to cover the extra interest that has accrued. To find out more about ANZ’s relief programs, head here

Commonwealth Bank

Commonwealth Bank offers repayment relief on a case-by-case basis. A Commonwealth Bank representative can work with you to find options, including extending your home loan term to reduce your repayments. Head here to find out more about Commonwealth Bank’s relief programs

NAB

NAB offers individualised hardship agreements. The bank has a customer team who specialises in putting together payment plans or variations. Any variations will require you to make up payments in the future, but NAB’s specialists will help you put together a plan to catch up on your commitments. To find out more about NAB’s hardship programs, head here.

Westpac

If you’ve made additional repayments on your Westpac home loan, you can reduce your payments by up to 50% for up to six months. This option is available twice during the life of your loan.
If you’re experiencing financial hardship, you can contact Westpac to set up a hardship plan. The bank also offers free independent advice from a financial counsellor, and access to the Salvation Army’s Doorways program, which specialises in helping individuals and families in financial hardship. To find out more about Westpac’s financial hardship programs, head here.

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18 Responses

    Default Gravatar
    AndrewApril 13, 2018

    Hi guys,
    I was recently made redundant and am concerned about my home loan repayments. My bank has offered me a 50% reduction in my koan repayments for a period of upto 3 months.

    I am considering taking this, however will it affect my long term credit rating and if I want to refinance or apply for a new loan in the next 6-12 months?

    Thanks in advance.
    Andrew

    Reply
      Default Gravatar
      ArnoldApril 13, 2018

      Hi Andrew,

      Thanks for your inquiry

      Any spike in your balance can affect your credit rating negatively. This is especially true if that balance will not be paid off immediately. The percentage of extended credit you utilize accounts for another 30% of your credit rating. This means that you should be aware of how much credit is extended your way, and keep balances low as much as possible. A consistent and timely payment history comprises 35% of your credit score and if you are able to make regular payments, this will in time improve your credit rating significantly.

      Hope this information helps

      Cheers,
      Arnold

      Reply
    Default Gravatar
    RhondaJanuary 23, 2018

    I have built a new home as a owner builder, I’ve lived in my home for 5 months and need to sell for personal reasons, do I need to worry about capital tax ?

    Reply
      Avatarfinder Customer Care
      JonathanFebruary 22, 2018Staff

      Hi Rhonda, thanks for your inquiry.

      Usually homes are subject to Capital Gains Tax (CGT). Some assets that are exempt from CGT include:

      -Your main residence and car or motorcycle
      -Depreciating assets used solely for taxable purposes, such as business equipment or fittings in a rental property
      any asset acquired before 20 September 1985.

      Please refer to the email I have sent for more information on CGT exemptions.

      Thanks,

      Jonathan

      Reply
    Default Gravatar
    JOYOctober 17, 2017

    I have been made redundant and can not at the moment pay my mortgage could I ask for a pause on my monthly mortgage for say 6 months until I get another job ? do I have any rights ? what should I be asking my mortgage company to do for me to help me at this time I would probable need 6 months at the most to resume normal payments

    Reply
      Default Gravatar
      DanielleOctober 18, 2017

      Hi Joy,

      Thank you for contacting finder. We are a comparison website and general information service, we’re more than happy to offer general advice.

      That would depend on your lender. If you face the very real prospect of falling behind on your payments it’s important to discuss your options with your lender immediately. Your lender may not agree to a repayment holiday at first, but instead may suggest alternatives that can still help you get back on your feet financially without affecting your home loan. This might include reducing your interest rate to lower your payments, switching your payments to Interest-Only payments, or even taking the next few payments out of any extra payments you might have made onto your mortgage. When these avenues have been exhausted, your lender may then agree to a full mortgage holiday.

      I hope this helps.

      Cheers,
      Danielle

      Reply
    Default Gravatar
    KylieApril 28, 2015

    Hello,

    I am going through this article. I am just wondering, if we take a payment holiday for our home loan for 3 months, would that in any way affect our personal credit file with the credit bureaus (Veda, D&B etc.), or would that any way affect our future borrowing with the same bank or a different banks for home loans, personal loans, car loans, or credit cards for that matter. If you can clarify.

    Thank you.

    Kylie

    Reply
      Default Gravatar
      BelindaMay 20, 2015

      Hi Kylie,

      Thanks for your enquiry.

      Depending on the lender, there will be specific policies regarding mortgage holidays. Please note that not every lender will offer you the opportunity to take a mortgage holiday but may prefer that you make reduced payments or interest-only payments.

      It would be best to speak to your lender directly.

      I hope this helps.

      Thanks,
      Belinda

      Reply
    Default Gravatar
    ToniDecember 10, 2014

    Hi I’m wanting to know how long can you have a mortgage repayment holiday for? I don’t want to stop paying per month at all just want to reduce them until my husbands work picks up please.

    Reply
      Avatarfinder Customer Care
      ShirleyDecember 10, 2014Staff

      Hi Toni,

      Thanks for your question.

      Mortgage repayments holidays generally last between a period of two to six months, depending on your lender.

      It’s best to speak to them directly to see what options they have available for you.

      Cheers,
      Shirley

      Reply
      Default Gravatar
      ToniDecember 10, 2014

      Hi Shirley thanks for the that!! Can i re-apply in the 1 year?

      Reply
      Avatarfinder Customer Care
      ShirleyDecember 11, 2014Staff

      Hi Toni,

      No worries at all – it will depend on your lender and what their policies are. With some lenders you can apply for a repayment holiday once every two years.

      Cheers,
      Shirley

      Reply
    Default Gravatar
    joenz59November 19, 2014

    I have a lot of debt due to being unemployed for 6 months.
    I am working again but earning 1/2 of my previous salary.
    I cannot pay mortgage, cc debt, car lease payment and general living costs .
    I am going to sell the house. Will the banks being willing to suspend my payments for 3 months until the house is sold if I talk to them?

    Reply
      Default Gravatar
      SuzanneMay 27, 2015

      Can you have some money in the bank when you apply for hardship? My husband has been off work (terminated) for 2 months now, we have 5,000 left in savings however owe a lot of debt. We have kept up our mortgage payments till now, but want to suspend for 3 months or until my husband gets another job.

      My question really is, do we have to have 0 bank balance before the bank will help us???

      Reply
      Default Gravatar
      BelindaJune 1, 2015

      Hi Suzanne,

      Thanks for your enquiry.

      Each lender will have different policies regarding mortgage repayment holidays.

      Some lenders may not immediately agree to a full repayment holiday and may suggest that you make reduced payments of whatever amount you’re able to afford. Others may suggest that you decrease your payments to interest-only payments to ease the financial pressure.

      It would be best to contact your lender directly to discuss your options.

      Thanks,
      Belinda

      Reply
      Avatarfinder Customer Care
      ShirleyNovember 19, 2014Staff

      Hi joenz59,

      Thanks for your question.

      Your bank will be willing to listen to your current situation and may be able to grant you a repayment holiday. It might have been a good idea to have notified them as soon as you were unemployed, but you should still approach them to come to an agreement regarding your home loan.

      Cheers,
      Shirley

      Reply
    Default Gravatar
    CherylOctober 7, 2014

    We have
    1.an owner occupied Interest only, CBA home loan
    2.an interest only investment loc (3 properties cross-collateralised)
    3. $100k across 4 credit cards.

    Our situation has just changed from 2 full time PAYE to 1 wage & we desperately need a bank holiday until my new income kicks in March 2015 as I have just replaced my PAYE job to – working for myself as as sub-contractor & it will take time to build up business etc.
    We think we should ask the NAB since the interest is tax deductible but don’t want them to panic & start looking too close etc. But if you think the home loan might be a more empathetic choice can u please advise.

    Reply
      Avatarfinder Customer Care
      ShirleyOctober 7, 2014Staff

      Hi Cheryl,

      Thanks for your question.

      Lenders generally want to hear about whether you’re having financial difficulties sooner rather than later, as they want to help you keep your loan commitments.

      You may want to consider speaking to your lender about a repayment holiday, they will keep a close eye on your home loan account but they can explain the options available to you.

      Cheers,
      Shirley

      Reply
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